Advice on using redundancy money to top up pension pots - worth it?

What_time_is_it

Thanks @leosayer
Just out of interest, who's responsibility is it to ensure that salary sacrifice isn't below minimum wage? I've been doing this for a few months now and my employer hasn't picked up on it or said anything. Will it cause a problem for me? Or them?

El_Torro

What_time_is_it said:

Thanks for the responses guys. Really appreciate it.

It sounds like maybe the best option would be to us both to invest the redundancy money in something else then? We've maxed out our ISA contributions for this year. Like I say we have about £300k in savings that are locked away. Plus around £200k in accessible savings to get us through the next couple of years and beyond and cover most eventualities in the next few years.

The numbers just about check out in a worst case scenario. If we were to never work again and if the state pension still exists from, say, age 70, then we would be able to live off around £30k a year between us I think. We'd draw our pensions as early as possible in those circumstances.

What investment products would you advise that we invest in? Or do we need an IFA?

£500k in cash is a lot, even with upcoming redundancies and career breaks. 

Since you already have Cash ISAs you could transfer some of the money to Stocks & Shares ISAs and invest that way. Then you can replenish your cash levels with the redundancy money. 

Over the long term it's worth seeing how much should be in cash and feed the rest into investments (pension and S&S ISAs). Given your circumstances you'll probably want a lot more cash than would be in a typical emergency fund, £500k does seem excessive though.

What_time_is_it

Thanks @El_Torro

That's the dilemma... how to balance it? We are so unsure of things at the moment, but clearly having more invested in medium to long term equities, etc would make a lot of sense.

We've each paid in £20k into a fixed rate cash ISA this tax year. Can we put more into a Stocks and Shares ISA too?

El_Torro

What_time_is_it said:

We've each paid in £20k into a fixed rate cash ISA this tax year. Can we put more into a Stocks and Shares ISA too?

No, you can't. However you can transfer money in a Cash ISA to a S&S ISA. It might be best to wait until your fixed rate ends, although it might also be possible to end your fixed rate early and move it straight away. Your ISA provider will probably charge you a penalty in interest paid if you do this. 

Remember that if you do move money from a Cash ISA to a S&S ISA you should ask the receiving bank to make the transfer. If you manually remove the money from a Cash ISA yourself then you will have lost this year's allowance.

What_time_is_it

Thanks again @El_Torro
We've got 5.25% on our fixed rate cash ISAs until 31st March 2025. Happy to leave it there and avoid the early exit fees. But when that runs out next year, maybe we move it to S&S ISAs instead. Can you transfer the whole balance across from cash to S&S? Or just each year's £20k allowance?

El_Torro

You can transfer any or all the money in your ISA to another ISA. It doesn't matter if the money in the ISA is money you put in or money that has come from interest payments.

leosayer

What_time_is_it said:

Thanks @leosayer
Just out of interest, who's responsibility is it to ensure that salary sacrifice isn't below minimum wage? I've been doing this for a few months now and my employer hasn't picked up on it or said anything. Will it cause a problem for me? Or them?

It's your employer's obligation. 

A few years back I sacrificed down to 0% for a few months until someone in our payroll team asked me to stop. Now their system prevents us from sacrificing too much. 

In any case, it's not worth sacrificing too much in one tax year because there's no tax relief to be had once you go below the personal allowance.

kempiejon

leosayer said:
It's your employer's obligation. 

A few years back I sacrificed down to 0% for a few months until someone in our payroll team asked me to stop. Now their system prevents us from sacrificing too much. 

In any case, it's not worth sacrificing too much in one tax year because there's no tax relief to be had once you go below the personal allowance.

I'm surprised your employer allowed you to sacrifice the full amount, as you say it's them who should keep you above minimum wage. Didn't spot it until you tried then?

Are you sure you don't get the tax back when you go below the personal allowance? Not my experience. But I wasn't using salary contribution I was paying to a SIPP from my current account.

leosayer

kempiejon said:

leosayer said:
It's your employer's obligation. 

A few years back I sacrificed down to 0% for a few months until someone in our payroll team asked me to stop. Now their system prevents us from sacrificing too much. 

In any case, it's not worth sacrificing too much in one tax year because there's no tax relief to be had once you go below the personal allowance.

I'm surprised your employer allowed you to sacrifice the full amount, as you say it's them who should keep you above minimum wage. Didn't spot it until you tried then?

Are you sure you don't get the tax back when you go below the personal allowance? Not my experience. But I wasn't using salary contribution I was paying to a SIPP from my current account.

I just wrote 100% on the paper form (this was 6 or 7 years ago), handed it to the reward person and they implemented it without question. I was aware of the national minimum wage at the time but didn't really consider it in conjunction with salary sacrifice. They only notified me after 2-3 months. I was doing the 100% sacrifice for 4-5 months so I probably though it would all come out in the wash at the end of the tax year, like income tax.

You do get tax relief on SIPP contributions up to 100% of earnings but there is no tax relief on salary sacrifice contributions because they are paid from gross salary. As a result, there's no benefit in using SS for contributions below the personal allowance.

Albermarle

What_time_is_it said:

Thanks for the responses guys. Really appreciate it.

It sounds like maybe the best option would be to us both to invest the redundancy money in something else then? We've maxed out our ISA contributions for this year. Like I say we have about £300k in savings that are locked away. Plus around £200k in accessible savings to get us through the next couple of years and beyond and cover most eventualities in the next few years.

The numbers just about check out in a worst case scenario. If we were to never work again and if the state pension still exists from, say, age 70, then we would be able to live off around £30k a year between us I think. We'd draw our pensions as early as possible in those circumstances.

What investment products would you advise that we invest in? Or do we need an IFA?

In your OP you did not mention the £200K which is quite significant !!

As already said it is a lot of cash ( £500K) . Opinions vary on how much cash to have. Mentally it can feel comfortable to have a lot of cash ( I am a bit that way myself) but your money has to last many decades ( hopefully) . In that case investments have always done significantly better than cash over very long periods ( and usually over medium term periods too.
Probably you need you get better informed about investing and/or get an IFA. There are lots of threads on this and the Investments forum along these lines.

The state pension is very likely to still exist for a very long time to come. Any government who stopped it would be heading for political oblivion, so it will not happen.
Probably the age at when you can take it will increase further though.